Potential Deal on Payroll Tax Cut: What it Means for You

Bowing to pressure, the top Republican in Congress on Thursday moved to end an impasse that threatened to impose a tax hike for 160 million Americans and cut off benefits for millions of unemployed people.

House of Representatives Speaker John Boehner agreed to a two-month deal to renew the popular payroll tax cut and extend jobless benefits, after the Republican-led House rejected a bipartisan Senate plan earlier this week.

Below is the ----which will be altered slightly from the original Senate plan to add provisions to help payroll processing companies.


The proposal extends for two months a 4.2% payroll tax rate now paid by workers, short of the ordinary 6.2% rate. President Barack Obama has been calling for an extension of the tax cut for months, in an effort to prevent the economy from stalling.

The payroll tax funds the federal Social Security retirement program. Employers and employees typically pay 6.2% each on the first $110,000 of wages.


Under the plan, unemployment benefits will be extended for a maximum of 99 weeks, preventing around 2 million jobless Americans from being cut off in the first two months of next year.

Some 13 million Americans are unemployed, of whom nearly 6 million have been without a job for more than one year.

Republicans had sought to limit the extended benefits for 59 weeks and to impose new requirements to qualify, such as drug testing.


The bill prevents a 27% tax cut in payments for doctors who treat patients on Medicare, the federal health plan for the elderly and disabled. Democrats and Republicans largely agreed on this issue.


The bill requires Obama to make a decision on approving TransCanada Corp's Canada-to-Texas Keystone XL oil pipeline within 60 days, or declare that the pipeline is not in the national interest.

Obama had previously put off a decision on the controversial pipeline until 2013, citing the need to study possible alternative routes, so this part of the deal is a concession by Obama and many Democrats.


The two month extension will be paid for by increasing the fees that mortgage financiers Fannie Mae, Freddie Mac and the Federal Housing Administration charge lenders to guarantee new loans.

The ultimate cost of the tax break will be shouldered by new homeowners, who pay lenders or banks for loans. According to calculations by Democrats, the monthly cost of a $220,000 mortgage would increase by less than $15.


The short-term measure will cost about $33 billion. Increasing the guarantee fees over 10 years is projected to raise $36 billion, according to the non-partisan Congressional Budget Office.


The bill makes a technical change to the Senate bill, removing the pay cap on wages subject to payroll tax relief. Payroll processing companies had complained of the administrative burden of implementing the two month fix.